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FX Weekly: Yen Returns to Losses, Dollar Under Pressure

Following a record intervention by the Japanese Ministry of Finance and the US Department of the Treasury, the yen strengthened by over 5%, recovering losses incurred over the last 5 months, since the outbreak of the war in Iran. After reaching a local low below the 156 level, the USDJPY pair has returned to growth.

Figure 1: Weekly Performance of Selected Currencies [vs. USD] (31.07 – 07.08)

Source: XTB Research, 10.08.2026

Japanese Yen (JPY)

The fundamentals have not changed significantly and continue to exert pressure on the Japanese currency. The key issue remains the carry trade, or trading on the interest rate differential. As long as the discrepancy between the projected interest rate levels in the United States and Japan remains significant, even interventions amounting to nearly 90 billion dollars may prove insufficient to permanently reverse the trend. Figure 2: USDJPY (31.10.2025 – 10.08.2026)

Source: xStation, 10.08.2026 Currently, the interest rate differential between both sides of the ocean stands at 2.675%. Market valuations suggest that it will narrow slightly in the coming months, reaching approximately 2.35% in July 2027. However, it seems that investors expect more decisive action from the Bank of Japan, with the next opportunity appearing only on 18 September. A decision to raise interest rates then could serve as a significant declaration for the market, leading to increased bets on subsequent hikes in the following months. Currently, such a move is priced at approximately 60%.

Figure 3: Bank of Japan Implied Policy Path (Hikes/Cuts) (2026-2027)

Source: XTB Research, 10.08.2026 In the meantime, the market’s attention will focus on the United States and the developing situation in the Middle East. Japan is almost entirely dependent on imports for its energy needs, and under standard conditions, nearly 90% of its crude oil comes from the Middle East. Figure 4: Japan’s Crude Oil Import Structure (2024)

Source: OEC, 10.08.2026 However, further interventions cannot be ruled out, which the markets seem to fear. Positioning on the yen has changed significantly after many investors withdrew speculative short positions for fear of further actions aimed at defending the exchange rate. Figure 5: Yen Positioning (2000 – 2026)

Source: XTB Research, 10.08.2026

US Dollar (USD)

The July NFP report has been published. The number of new jobs in the US economy fell by 23 thousand, missing expectations by 5 standard deviations. Although extreme phenomena occur much more frequently in the world of macroeconomics (the so-called fat tails), assuming the data follows a normal distribution, we would have to wait 290,000 years for another such reading. Figure 6: NFP and Employment Component in ISM PMI (2016 – 2026)

Source: XTB Research, 10.08.2026 The market reaction was certainly noticeable, though not as strong as many might have expected. The dollar’s losses were limited by, among other things, a decline in the unemployment rate (to 4.1%) and problems with seasonal adjustment of the data (the decline resulted mainly from a lower number of jobs in the public education sector). Figure 7: NFP and Unemployment Rate (1980 – 2026)

Source: XTB Research, 10.08.2026 It is worth noting, however, that higher energy prices have affected companies in the retail, leisure, and hospitality sectors (this despite the World Cup ending in July). Investors are currently unsure which direction the Fed will take in September; looking at market valuations, the chances of a hike can be compared to a coin toss. All eyes are on the July inflation reading scheduled for Wednesday. If, despite rising oil and gas prices, it shows similar values to June, we expect the committee led by Kevin Warsh to refrain from a hike until the next meeting. Figure 8: US CPI Inflation (2004 – 2026)

Source: XTB Research, 10.08.2026 For Warsh himself, this would be an exceptionally comfortable situation. In the event of intensifying inflation concerns, the committee would be almost forced to raise rates, especially in the face of revived discussions regarding the Fed’s independence. The topic returned to the table after further threats from Donald Trump directed at Lisa Cook, one of the FOMC decision-makers. These appeared more than a month after the Supreme Court deemed the president’s recent actions in this area unlawful.

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EUR/JPY Price Remains below 183.00 as bearish bias prevails

  • EUR/JPY could find primary support at the nine-day EMA at 183.34.
  • The 14-day Relative Strength Index at 47.63 indicates prevailing bearish bias.
  • The initial barrier lies at the 50-day EMA at 184.57.

EUR/JPY depreciates after registering modest gains in the previous day, trading around 183.80 during the Asian hours on Tuesday. The Relative Strength Index (14) at 47.63 sits just below the neutral 50 line, hinting at ongoing bearish momentum without yet reaching oversold conditions.

The EUR/JPY cross is holding a mildly bearish near-term bias as it remains below the 50-day Exponential Moving Average (EMA) while it is positioned just above the nine-day EMA. This configuration suggests the cross is caught between short-term support and overhead trend resistance, with price action vulnerable to further downside while the longer EMA caps the topside.

The initial support lies at the nine-day EMA at 183.34. A successful break below the short-term moving average would reinforce the bearish bias and put downward pressure on the EUR/JPY cross to fall toward the eight-month low of 179.37, reached on August 3, followed by the nine-month low of 175.70.

On the upside, the EUR/JPY cross could rise toward the primary resistance at the 50-day EMA at 184.57. Further advances above the medium-term moving average would cause a bullish emergence and support the currency cross to explore the region around the all-time high of 187.95, which was recorded on April 17.

Markets edge toward BoJ tightening as hike odds firm into year-end

BNY’s Wee Khoon Chong notes that policy expectations have shifted meaningfully, with “markets now pricing in roughly a 50% chance of a 25bp BoJ hike in September and a full hike by year-end,” underscoring the growing conviction that the BoJ will move further away from its ultra-accommodative stance over the coming months.

Chart Analysis EUR/JPY
EUR/JPY: Daily Chart
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Japanese Yen holds range in thin holiday trading amid intervention speculations

  • Japanese Yen holds steady during Mountain Day holiday while markets weigh potential intervention amid thin liquidity.
  • The BoJ may raise rates in September to counter inflation from a weak yen and rising oil.
  • A weak July US payrolls report created headwinds for the US Dollar, introducing rate uncertainty following dovish policy repricing.

USD/JPY moves little after posting nearly 1% gains in the previous day, trading around 159.30 during the Asian hours on Tuesday. The pair moved little today, trading in tight ranges as market volumes remained thin with Japanese markets closed for the Mountain Day holiday.

The Japanese Yen (JPY) has retraced about half of the gains made during its recent intervention-driven rally, directly testing the resolve of officials in both Tokyo and Washington to support the currency.

According to a Reuters analyst, Japan’s decision not to follow through on its joint intervention, especially by failing to amplify Friday’s US Dollar (USD) weakness following soft US jobs data, suggests a passive strategy designed merely to slow the Dollar’s rise rather than fundamentally reverse the Yen’s multi-year decline. This distinction is critical for market positioning, as investors remain heavily short on the Yen, holding the largest net-short positions since early 2024. With liquidity reduced, analysts note that Tuesday’s holiday in Japan could serve as a prime strategic window for authorities to launch another intervention.

Meanwhile, monetary policy expectations in Japan continue to shift. According to Jiji Press, the Bank of Japan (BoJ) may consider another interest rate increase at its upcoming September 17–18 meeting, following its rate hike in June, to combat growing inflationary risks. Domestic prices face upward pressure from rapid growth in artificial intelligence-related demand, the Yen’s ongoing depreciation, and elevated global crude oil prices. A September hike would mark an accelerated timeline for the central bank, upending the consensus among financial market participants who had previously anticipated rate increases roughly once every six months.

Yen rates market leans toward BoJ lift-off by year-end

BNY’s Wee Khoon Chong notes that rate expectations have shifted meaningfully, with markets now “pricing in roughly a 50% chance of a 25bp BoJ hike in September and a full hike by year-end,” underscoring growing conviction that the BoJ will begin normalising policy over the coming months.

The USD/JPY pair holds losses as the US Dollar (USD) faces headwinds following a weaker-than-expected July payrolls report. The soft labor data sparked a dovish shift in market expectations, reintroducing two-sided policy risk into a market that had previously expected the Federal Reserve (Fed) to keep interest rates strictly on hold.

However, the US Dollar may regain its ground as geopolitical tension has driven a sharp rally in crude oil, which in turn has pushed Treasury yields higher. Concerns are growing that the Federal Reserve (Fed) may feel compelled to raise rates sooner rather than later, even against the backdrop of a cooling labor market.

Investors are now closely watching upcoming inflation data this week to gauge the Fed’s next move, with the CME FedWatch Tool showing that market-implied odds of a 25-basis-point Fed rate hike in September have climbed above 51%, up from 44.4% just a day prior.

Barkin flags uneasy labor tone but strong earnings keep Fed bias hawkish

Barkin’s latest remarks strike a cautiously uneasy tone on the labor market, with the description of “low hire, low fire” and a “sector in weak balance” pointing to softer job dynamics despite no acute stress. The FXS Speechtracker score of 5.4/10 sits slightly below the historical average of 5.8/10, underscoring a modestly less confident stance, even as Barkin highlights “quite strong” and “growing nicely” corporate earnings and explicitly watches those earnings for linkages to the job market. Overall, the mix of labor unease and solid corporate performance suggests a nuanced policy bias that is less upbeat than the established baseline but not decisively dovish for the Dollar.

The FXS Fed Sentiment Index fell by 1.68 points to 137.01, signaling a pullback in hawkish tone relative to recent communications. However, with the FXS Fed Sentiment Index still well above the neutral 100 mark, the Fed remains firmly in hawkish territory despite the softer labor rhetoric captured in the FXS Speechtracker.

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Chart of the Day: USD/JPY Recovers After Disappointing Payroll Data

The USD/JPY exchange rate quickly recouped most of the losses triggered by the weak US labour market report and is trading on Monday around 158.20–158.50, virtually where the pair stood prior to the data release. Friday’s payrolls figures showed a fall in employment of 23,000 against an expected increase of 80,000, triggering a sharp sell-off in the dollar and sending USD/JPY down from around 158.30 to approximately 156.70, before buyers quickly returned to the market. The market’s attention is now turning to Wednesday’s release of the US CPI for July, which will determine whether the Federal Reserve still has scope for a rate rise in September.

What the daily chart shows

The attached daily USD/JPY chart (D1 timeframe) shows a clear, well-defined uptrend that has been in place since February, with the price moving consistently along or above one standard deviation below the anchored VWAP since the start of 2026 (as the main support zone for the long-term uptrend). A key element of the chart pattern is the broad resistance zone around 159,000–160,000, marked on the chart as “Resistance area” – the same level which previously, from March to May, acted as a consolidation zone and repeatedly rejected price movements (and currently constitutes the main cluster of the value zone when looking at the volume profile marked since the start of the year), Friday’s long red candle with a long lower shadow was a reaction to the weak payrolls figures – there was a sharp fall from around 163,000–164,000 towards the resistance level, followed by a rebound that saw the week close near 158,500. The current price (158,496) sits right at the lower end of the resistance zone, just below the 159,000 level, suggesting that the market is testing whether the former resistance will now turn into new support.

What’s next for the couple?

The balance of risks remains uncertain, but for the time being it may appear to be tilted slightly towards gains as long as tensions surrounding the US–Iran conflict and the Strait of Hormuz persist, which is keeping bond yields higher (10-year US bonds are still around 4.655 per cent). At the same time, the risk of another joint US–Japan intervention is likely to cap gains around the 160 level, whilst a significantly weaker CPI reading could pave the way for a decline to the 155–156 range, where investors have previously been keen to buy on dips. Wednesday’s CPI reading for July (forecast at 3.4% y/y, down from 3.5% previously) will be a key test for the pair’s future direction, as it will determine whether the market will continue to scale back expectations of a Fed rate rise in September and reverse the trend, or whether the current narrative will prevail.

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British Pound rallies to over one-week high as fiscal woes and rate gap hammer Yen

  • GBP/JPY gains strong positive traction at the start of a new week amid a broadly weaker JPY.
  • Japan’s fiscal concerns offset the recent intervention and exert heavy pressure on the JPY.
  • The wide UK-Japan rate gap keeps the JPY carry trade active and further supports spot prices.

The GBP/JPY cross catches aggressive bids at the start of a new week and builds on its strong recovery move from the vicinity of mid-209.00s, or the lowest level since early March touched last Monday. The momentum lifts spot prices to an over one-week high, around the 214.00 neighborhood, during the early part of the European session and is sponsored by a broadly weaker Japanese Yen (JPY).

Following a brief surge driven by a joint US-Japan intervention, the JPY resumes its downtrend amid concerns about Japan’s worsening fiscal conditions stemming from Prime Minister Sanae Takaichi’s aggressive economic stimulus and tax cuts. In fact, Japan’s ruling Liberal Democratic Party (LDP) backed a proposal to cut the food consumption tax from 8% to 1% for two years starting in April 2027. Adding to this, the Japanese government proposed roughly ¥600 billion a year in cash transfers targeted at low- and middle-income households as part of a relief package.

Furthermore, the wide interest rate gaps between Japan and other major economies, including the UK, keep the so-called carry trade active and exert additional pressure on the JPY. The Bank of Japan (BoJ) lifted the short-term policy rate in June to 1.00%, or the highest since 1995, while the Bank of England’s (BoE) base rate is at 3.75%. This leaves a gap of around 275 basis points (bps), which, in turn, favors GBP/JPY bulls. Meanwhile, the strong intraday move up seems rather unaffected by a relatively hawkish BoJ Summary of Opinions from the July 30-31 meeting.

Market participants now look to this week’s release of the quarterly UK GDP report, which will play a key role in influencing the British Pound (GBP). The aforementioned fundamental backdrop, however, suggests that the recent corrective decline from the 219.60 region, or a multi-year top touched in July, has run its course and backs the case for a further near-term appreciating move for the GBP/JPY cross.

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Japanese Yen comes under pressure as BoJ division, unexpected current account deficit

  • USD/JPY rises as split BoJ board views on future rate hikes keep the Yen on the defensive.
  • Japan logged an unexpected June current account deficit of JPY 92.3 billion, its first in 17 months, on large foreign dividend payouts.
  • Escalating US-Iran tensions boost the Dollar, driving the USD/JPY pair higher.

USD/JPY gains ground after registering modest losses in the previous day, trading around 158.20 during the Asian hours on Monday. The pair remains stronger as the Japanese Yen (JPY) holds losses following the release of the Bank of Japan’s (BoJ) Summary of Opinions from its July 30–31 monetary policy meeting.

The summary suggested a clear division among board members; while some advocated for holding interest rates steady to evaluate the lagged impact of previous rate hikes, others pushed to maintain or even accelerate the tightening cycle, citing rising upside risks to prices. Despite members noting that Middle East tensions are weighing on economic activity, they highlighted that robust AI-related demand and a moderately recovering domestic economy continue to provide an offset.

Japan recorded its first current account deficit in 17 months in June, driven by high dividend payouts to overseas investors who have been pouring capital into domestic markets. According to Finance Ministry data released Monday, the deficit hit JPY 92.3 billion ($584.51 million), wildly missing economists’ median forecast of a JPY 1.51 trillion surplus in a Reuters poll, and down sharply from a JPY 1.28 trillion surplus a year earlier.

The USD/JPY pair rises as the US Dollar (USD) continues to draw support from broad risk aversion. Geopolitical tensions remain high as the ongoing US-Iran conflict enters a critical diplomatic phase, with intense military engagements and strategic pressure surrounding the Strait of Hormuz driving market caution. Although Iranian officials noted on Sunday that Oman-mediated negotiations regarding the management of the strait are making progress, safe-haven demand for the Greenback remains firmly intact.

Fed expectations seen driving scope for lower yields

According to TD Securities, the risk of another Fed hike “lingers,” but the bank argues that upcoming inflation data could be pivotal for rate expectations. The team notes that their projections for this week’s CPI — “core and headline CPI this week (0.20% m/m and 0.15% m/m, respectively)” — would “likely lead to further pricing out of hikes.” With “the majority of the recent move higher in rates driven by Fed expectations,” TD Securities adds that “rates could move lower as hikes are priced out.”

Musalem flags persistent inflation risks as Fed bias stays hawkish

Fed’s Musalem delivered a modestly more hawkish tone, with the FXS Speechtracker score at 7.4 versus a 7.0 historical baseline, underscoring concern that inflation expectations could risk losing their anchor even as they are currently described as stable and aligned with the 2% target. Emphasis on core inflation amid energy volatility, a preference for incremental rate hikes, and an assessment that core inflation likely sits between 2.5% and 3%—alongside a stated willingness to surprise markets when needed—reinforce a bias toward tighter policy and a higher-for-longer stance. The assertion that the Dollar’s reserve status is not under threat and that the United States remains the fastest-growing, most innovative economy with strong rule of law further supports a constructive backdrop for the Dollar, especially as financial conditions are still seen as highly accommodative and many asset prices remain elevated.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to hold at a hawkish 138.69, signaling that despite the slightly above-baseline speech score, the broader policy tone remains consistently restrictive rather than newly escalated. With the index firmly above the neutral 100 mark and aligned with the elevated FXS Speechtracker reading, markets are likely to interpret Musalem’s remarks as reinforcing existing expectations for a cautious, data-dependent path that leans toward additional tightening if inflation fails to move sustainably closer to the 2% target.

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EUR/JPY recovers from session low but remained down on Friday

  • The cross plunged near the start of the American session despite broad Euro gains elsewhere.
  • The Yen jumped after the US payrolls shock, with traders alert to intervention a week on from the joint Tokyo-Washington operation.
  • German industrial and trade figures offered the Euro little help, and the ECB is in no hurry.

EUR/JPY trades on the back foot on Friday, easing away even as the Euro (EUR) posts solid gains against the US Dollar (USD). The Japanese currency surged suddenly near the start of the American session after a surprisingly weak United States (US) employment report. But the cross recovered much of those losses fairly quickly.

Japan and the United States conducted coordinated Yen-buying intervention last Friday, a rare bilateral action, and that memory is enough to make traders reluctant to sell the Yen into a US Dollar that fell over 1% against the Yen during the early American session on Friday. The Yen now drifts well away from the 40-year low it reached in July.

The European Central Bank (ECB) continues to adopt a cautious stance after leaving interest rates unchanged at its latest meeting. Markets currently expect only one additional rate hike before the end of the year, with a lower chance of a second increase.

Iran’s parliament speaker and top negotiator, Mohammad Bagher Ghalibaf, accused US President Donald Trump of staging “theater diplomacy” on Thursday, and under the draft plan reported by Fars, US and Israeli ships would be barred from the Strait of Hormuz. Flows through the waterway are unlikely to return to pre-war levels any time soon even if Iran and Oman finalize their framework. For an economy that imports almost all of its energy through that route, higher and less certain Crude prices erode Japan’s terms of trade, which is the mechanism that drove the Yen to four-decade lows in the first place.

Chart Analysis EUR/JPY

Short-term technical analysis:

On the 4-hour chart, EUR/JPY trades at 182.00, retaining a mildly bearish near-term bias as it holds below both the 20-period Simple Moving Average (SMA) at 182.17 and the 100-period SMA at 184.70. The pair is caught under a nearby horizontal cap at 182.13, while the Relative Strength Index (RSI) around 41 suggests subdued momentum rather than aggressive selling, hinting at a consolidative tone beneath these overhead levels.

On the topside, immediate resistance is seen at 182.13, followed by the 20-period SMA at 182.17. Asustained break above this cluster would open the way toward the next barrier at 182.69 before the broader 100-period SMA near 184.70.

On the downside, initial support aligns at 181.76, ahead of a lower horizontal floor at 181.30 where the cross found support early in the American session on Friday. A decisive breach there would reinforce the bearish bias and expose deeper retracement levels in the coming sessions.

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GBP/JPY Price the Rebound holds above 200-day SMA

  • GBP/JPY recovers 200-day SMA after sliding to 211.47.
  • Upside remains capped by 100- and 50-day SMA resistance.
  • Break below 211.91 exposes 211.00 and 209.58 support.

The British Pound retreats against the Japanese Yen, down about 0.24%, as the Yen is poised to end the week on a higher note. However, GBP/JPY is poised to finish the week with minimal gains, trading at 212.64.

GBP/JPY Price Forecast: Technical outlook

The GBP/JPY trades sideways, though slightly tilted to the downside, following an intervention in the FX markets by US and Japanese authorities. Worth noting that after soft US jobs data, Japanese Finance Minister Katayama said she agreed with US Treasury Secretary Scott Bessent that FX markets had been affected by moves rather than fundamentals.

This pushed GBP/JPY to the day’s low of 211.47, slightly below the 200-day SMA of 211.91, but buyers reclaimed the latter and surpassed 212.00. After the rebound, the cross is about to end Friday’s session near the highs, but it will face key resistance at the 100-day SMA at 214.48, followed by the 50-day SMA at 215.42.

In the event of further losses, the first GBP/JPY support is 212.00. Below the next support is the 200-day SMA at 211.91, followed by 211.00. Beneath emerges the August 3 low of 209.58.

GBP/JPY Price Chart – Daily

GBP/JPY daily chart